The Republicans have blinked, offering President Barack Obama the chance to kick the debt can down the road and avoid a catastrophic default on US debts.

The olive branch is not the final chapter of the political standoff that has shaken up investors around the world for more than a week. But it does ease the immediate pressures that were beginning to build in financial markets ahead of a notional deadline of October 17 for the $US16.7 trillion debt limit to be raised.

The US stock market posted its second best day of the year on Thursday, with both the Dow Jones Industrial Average and the S&P 500 Index each rising 2.2 per cent.

The less radical elements of the Republican party have finally managed to wrestle back some internal power 10 days into the government shutdown.

Republican House Speaker John Boehner’s public offer to the President on Thursday for a short term increase in the debt limit in return for opening negotiations on the long-term state of the budget, will likely be taken up by Obama, subject to some quibbling over details.

Any initial deal would probably last for up to six weeks.

Shutdown to end?

One sticking point is that the Republican compromise left unclear whether the piecemeal offer would be extended to ending the government shutdown. Obama will almost certainly want that impasse ended before agreeing to extended talks on the budget. White House spokesman Jay Carney indicated Obama would not negotiate unless Congress also reopened the government by passing the budget for the new October 1 financial year.

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After meeting with House Republican leaders and ahead of a scheduled meeting with the President at the White House on Thursday afternoon, Boehner said he was making a good faith offer.

“What we want to do is to offer the president today the ability to move a temporary increase in the debt ceiling, an agreement to go to conference on the budget, for his willingness to sit down and discuss with us a way forward to re-open the government, and to start to deal with America’s pressing problems," Boehner said.

The Republicans have dropped their demand to defund the President’s signature healthcare laws and have shifted their focus to the broader topic of budget spending and tax reform.

Ryan credited for compromise

In line with the Republican thinking, the more spending cuts they can extract from Obama, the longer they will increase the borrowing limit for.

The White House has consistently said it is open to discussions on the long term health of the US budget, as long as Republicans ended the shutdown and removed the blackmail threat over the debt ceiling.

The man being credited with brokering a compromise among Republicans is chairman of the House Budget Committee Paul Ryan, who ran for Vice President last year. The conservative Tea Party side of the party was previously in control of the debate. Business groups aligned to Republicans have lobbied the party to remove the threat of imminent default.

Earlier, Treasury Secretary Jack Lew told a Senate Finance Committee of the difficulties of prioritising payments and paying only some of the government’s bills if the debt ceiling wasn’t raised by October 17. “I don’t believe there is a way to pick and choose on a broad basis," Mr Lew said.

“The system was not designed to be turned off selectively. Anyone who thinks it can be done just doesn’t know the architecture of our multiple" payment systems."

These concerns seem to be abating, at least for now, given the game of brinkmanship is showing signs of thawing.